The artificial intelligence sector, a significant driver of market upside, is showing signs of technical weakening, suggesting a potential for further declines despite any short-term rebounds. The Global X Artificial Intelligence & Technology ETF (AIQ), a key proxy for the broader AI theme, has already retreated nearly 19% from its peak last month.
Key technical indicators reinforce this bearish outlook. The weekly MACD has issued a 'sell' signal, a significant development that points to a prolonged correction over the coming weeks. Additionally, weekly stochastics are trending lower, indicating a clear loss of upside momentum after the ETF experienced an extended rally in June.
AIQ’s composition, with top holdings like SK Hynix, Micron, AMD, Apple, and NVIDIA, makes its performance crucial for the semiconductor, AI infrastructure, and mega-cap technology segments of the market. Its current technical profile, therefore, carries broad implications.
While the daily chart suggests that AIQ may be due for a near-term stabilization, possibly a bounce, this should not be misconstrued as a reversal of the intermediate-term downtrend. The ETF is currently oversold in the short term and is testing support around its daily cloud model, which could prompt a temporary rebound.
However, analysts warn that such a rebound would likely be an interruption to the ongoing correction, rather than the beginning of a new uptrend. Initial resistance is anticipated between $64 and $65, at the 50-day moving average and daily cloud. A decisive break below the cloud-based support near $57 would invalidate the uptrend from the March low and open the door to further downside, with secondary support around $54.
The relative performance chart tells a similar story: AIQ has broken down against the S&P 500 (SPX) following a period of strong outperformance, confirming a shift away from AI leadership. Despite being short-term oversold, which might allow for brief relative stabilization, the significant loss of momentum suggests continued underperformance throughout the summer.
Although AIQ remains in a long-term uptrend, the current loss of intermediate-term momentum makes it vulnerable to a deeper correction. Investors are advised to consider using any short-term strength as an opportunity to reduce exposure until underlying momentum shows signs of improvement.
